Mel Watt faces tough affordable housing question

Fannie Mae and Freddie Mac regulator Mel Watt will soon have to dive into the politically thorny debate over affordable housing, an issue that served as one of the key breaking points in recent Senate talks over what to do with the two mortgage finance giants.

The affordable housing goals for government-controlled Fannie and Freddie, last set by the Federal Housing Finance Agency in 2012, will expire at the end of the year and homeowner advocates expect a proposal from Watt, who heads the agency, to come in July at the latest in order to allow time for public comment before it goes into effect next year.

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For Watt, who took over the agency in January, the issue may prove to be the toughest test yet for whether the former North Carolina congressman can walk the line between overseeing the immediate needs of the two companies and protecting taxpayers from losses while also addressing concerns that it remains too hard for low- and middle-income borrowers to get a mortgage.

“I think there is going to be a very important push with Mel Watt there,” said National Urban League CEO Marc Morial, whose organization wants the goals expanded.

Since becoming FHFA director, Watt has kept a low profile and avoided getting enmeshed in the congressional debate over housing policy — choosing instead to emphasize that he is carrying out the mandate given to the agency as part of the 2008 takeover of Fannie and Freddie.

But to what degree the two companies should support affordable housing has been a contentious issue, and it will be difficult for Watt to avoid getting caught up in the political crossfire when he releases the new set of goals.

For instance, key liberal senators, such as Democrats Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, decided not to support a bipartisan housing finance overhaul bill produced by Senate Banking Committee leaders earlier this year, in part, because it got rid of the companies’ affordable housing goals and these lawmakers weren’t satisfied with what would take their place. The bill was approved by the committee but is unlikely to get a floor vote.

Republicans point to the government’s push to make mortgages available to more lower- and middle-income borrowers as a contributor to the housing crisis and are critical of any attempt now to have Fannie and Freddie expand their role in this market.

“My suspicion is that Mel is going to send us on the path that we were on before the 2008 collapse,” said Sen. Mike Johanns (R-Neb.), who had voted for the Senate housing plan during a committee markup in May. “I hope I’m wrong.”

Housing advocates are pushing Watt to do more, arguing that he has the flexibility to expand the affordable housing goals without hurting Fannie and Freddie’s bottom line.

“I think he’s going to do what he believes he needs to do to execute his role as conservator but also in his role as a director of an agency that could help ease some of the tight credit in the market today,” said National Council of La Raza senior policy adviser Enrique Lopezlira.

Fannie and Freddie do not originate mortgages but instead buy them from lenders and package them into securities to be sold to investors. They guarantee full payment on these bonds as part of a system that ensures money will be there for new loans. They were rescued by taxpayers and taken over by the government in 2008, but policymakers have struggled to figure out what to do with the mortgage finance giants since.

Because the two companies continue to dominate the housing market, they have a big impact on how easy it is to get a mortgage.

FHFA said in its annual strategic plan released earlier this year that it would consider whether Fannie and Freddie could do more to reach underserved creditworthy borrowers, but Watt made no mention of the affordable housing goals in May when he delivered his only major policy speech.

An FHFA representative declined to comment.

Consumer groups have already dispatched letters and held meetings with agency officials to make their case for broader access to the mortgage market.

“Now that you have indicated a desire to lead the market towards a responsible loosening of credit, we encourage the goals rulemaking to reflect that expectation,” a collection of 22 advocacy groups and left-leaning think tanks, such as the National Community Reinvestment Coalition and the Center for American Progress, wrote in a May 23 letter to Watt.

The groups criticized Watt’s predecessor, former FHFA Acting Director Edward DeMarco, when the goals were last finalized in 2012 because they required that 23 percent of the loans the two companies finance go to low-income families. The groups thought this percentage was too low by historical standards and wanted the percentage set closer to 30 percent.